The state of labour market reforms - background summary

Although relatively unscathed by the debt crisis that resulted in dramatic reforms to the labour market in several European countries, the labour market in the Netherlands has nonetheless undergone profound change involving strong growth in temporary jobs and self-employment, prompting the authorities to correct a number of excesses.

In November 2013, the Government tabled three bills to modernise the labour markets, the thrust of which was based on a tripartite agreement adopted on 11 April 2013 by the Government and the social partners. The three topics covered are flexible working, termination of employment and unemployment benefit.

Reducing temporary employment

According to one study, the share of temporary employment in total employment rose from 17% to 27% between 2000 and 2013, not least because the likelihood of an employee on a temporary contract moving onto a permanent contract had fallen significantly. More than one third of people who had had temporary contracts for three years were still in temporary employment.

On 10 June 2014, Parliament adopted the Employment Security Act (Wet Werk en Zekerheid) to reduce job insecurity by reducing the differences between permanent contracts and temporary contracts. The measures entered into force in 2015. The maximum number of consecutive fixed-term contracts was limited to three for a maximum period of two years instead of three years previously. The fourth contract would be deemed to be of indefinite duration. The gap between two temporary contracts was extended from three to six months. Moreover, the trial period was abolished for contracts lasting less than six months.

Reform of termination of employment

The Employment Security Act also contains provisions reforming the rights on termination of employment. The text provides for two procedures for terminating employees’ employment:

in the event that employment is terminated on economic grounds or on grounds of long-term incapacity to work, the employer must obtain authorisation from the body responsible for implementing social security legislation applicable to employees and re-entering the labour market (UwV);

in the event that employment is terminated on other grounds, in particular on personal grounds, the employer must apply to the courts.

The Act also amends the complex rules on compensation for termination of employment. An employee with two years’ service receives an indemnity (‘transitional compensation’) calculated based on a proportion of their salary and their length of service up to a maximum of EUR 75 000 (or one year’s salary for those earning more than EUR 75 000 per year). The ceiling is well below the level that an employee could have obtained previously.

Additionally, the employer may deduct from the transitional compensation payment any training costs he has incurred in the aim of maintaining the employee’s employability. The aim is to incentivise employers to provide ongoing training for their staff.

Reform of unemployment benefits

Beginning on 1 January 2016, another important measure introduced under the Employment Security Act is the gradual reduction from 38 to 24months in the duration of unemployment benefits. However, the social partners can negotiate payment of allowances for longer periods (between 24 and 38 months) as part of collective agreements.

Another important point is that individuals registered as unemployed for more than six months must accept any offer of work available. An unemployed person who finds a job where the pay is less than his/her unemployment allowance is eligible for a supplement.

Combating social fraud and fraud involving posted workers

In view of the growing number of self-employed workers, a Fraudulent Forms of Employment Act (Wet aanpak schijnconstructies) was adopted in June 2015 to combat fraud, especially bogus self-employment, and to beef up protection for posted workers, especially in relation to the payment of the minimum wage. As of 1 January 2016, employers may no longer pay employees in cash and must clearly state any deductions they apply to the minimum wage in order to cover accommodation and sickness insurance costs.